THE SCOPE OF INTERFERENCE BY THE COURT IN THE ARBITRAL AWARD IS LIMITED

[Mr. M. GOVINDARAJAN]

      Besides legal procedures arbitration plays a vital role in settlement of disputes especially in commercial disputes.  Arbitral procedure is simple and not time consuming as that of legal cases and binding on the parties.  An arbitration is the reference to a dispute or difference between not less than two parties fro determination, after hearing both sides in a judicial manner, by a person or persons other than a court of competent jurisdiction.  The Arbitration Act, 1940 for a long period dealt with the arbitration procedure.   By this Act after the award of the arbitration it should be made as a rule of court.   Then only it can be enforced.   But this Act has been replaced by the Arbitration and Conciliation Act, 1996 in consonance with the United Nations Commission of International Trade Law (UNCITRAL) adopted in 1985 the Model Law on International Commercial Arbitration.  Both The Arbitration Act, 1940 and the Arbitration and Conciliation Act, 1996 give the powers of the Court to interfere in the arbitral award but with some differences.  The object of this article is to explain the scope of interference by the Court in the arbitral award with reference to the case law 'Satna Stone & Line Co. Ltd., V. Union of India and another' - (2008) 23 CLA-BL.supp 180 (SC) decided on 8^th May, 2008.

       The appellant, in this case, entered into an agreement into an government with the General Manager, GIP Railway, Government of India, on22.3.1897, whereby a siding was provided to the company for clearance of its goods.   The agreement was revised from time to time and the last such agreement was executed on 01.10.1942.  The Railway administration on 24.08.1968 informed the appellants that the maintenance charges would be levied at the rate of 4.5 % per annum instead of 2.5%.   The Railway administration raised the bills for the period 01.11.1963 to 31.03.1975.  The appellants paid the bills under protect on 22.06.1976.   The appellants filed an application under Sec. 20 of the Arbitration Act, 1940 and the matter was referred to arbitration.   The arbitrator decided the claim in favor of the appellants.  The objections raised by the Railways under Sec. 30 of the Arbitration Act were rejected by the District Judge and the award was made the rule of court.

       The Railway Administration filed a Misc. application before the Division Bench of Madhya Pradesh High Court against the order of the District Judge.  The Railway Administration pointed out that the decision of the Supreme Court in 'Union of India V. Indian Sugar Mills Association' - AIR 1968 SC 22, that the Railway administration was competent to increase the rate chargeable for the services rendered was ignored by the arbitrator.   The High Court concluded that the award is based on wrong principles of law.   If the decision of the arbitrator, the Court held, is contrary to law laid down by the Court, then it would be justified in interfering with the award.

      The appellants, in this case, placed reliance on some judgments as follows:

'B.V. Radha Krishna v. Sponge Iron India Ltd.,' - (1997) 4 SCC 693 - the Supreme Court held that the High Court was not justified in substituting its own view in place of arbitrator's view as if it was dealing with an appeal.   This is forbidden by a serious of judgments of Supreme Court.

'Puri Construction (P) Ltd., V. Union of India' (1989) 1 SCC 411 - In this case the Supreme Court reiterated the legal position that the court cannot sit in appeal over the views of the arbitrator by re-examining and reassessing the material.

 'Hindustan Construction Co. Ltd., V. Governor of Orissa' - (1995) 3 SCC 8 - the Supreme Court observed - It is well know that the Court while considering the question whether the award should be set aside, does not examine that question as an appellate court.   While exercising the said power, the court cannot re appreciate all the materials on the record for the purpose of recording a finding whether in the facts and circumstances of a particular case the award in question could have been made.   Such award can be set aside on any of the ground specified in Sec. 30 of the Act.

       The respondent Railway Administration relief on the following judgments:

·  Trustees of the Port of Madras V. Engineering Constructions Corporation Ltd., (1995) 5 SCC 531;

·  Union of India V. Indian Sugar Mills Association, AIR 1968 SC 22;

·  Bungo Steel Furniture (P) Ltd., V. Union of India - (1967) 1 SCR 633;

·  Champsey Bhara & Co. V. Jivraj Balloo Spg. & Wvg. Co.,Ltd., - AIR 1923 PC 65;

·  Raipur Development Authority V. Chokhamal Contractors (1989) 2 SCC 721.

 In 'Trustees of the Port of Madras V. Engineering constructions Corporation Ltd.," (supra) the Supreme Court observed that in the case of a reasoned award, the court can interfere if the award is based upon a proposition of law which is unsound in law.   The error apparent on the face of the award contemplated by Sec. 16(1)© as well as Sec. 30© of the Arbitration Act is an error of law apparent on the face of the award and not an error of fact.  An error of law on the face of the award means an error of law which can be discovered from the award itself or from a document actually incorporated therein.   The erroneous proposition of law must be established to have vitiated the decision.   The Arbitrator being a creature of the contract must operate within the four corners of the contract.   It is not permissible to travel beyond and consider material not incorporated in or appended to the award."

 In 'Union of India V. India Sugar Mills Association' (supra) the Supreme court  laid down that the local administration was competent to increase the rate of charges.   The arbitrator ignored the settled legal position and consequently the High Court was justified in interfering with the award based on wrong principles of law.

 In 'Bungo Steel Furniture (P) Ltd., V. Union of India' (supra) the Supreme Court observed - The Arbitrator is fixing the amount of compensation had not proceeded to follow any principles, the validity of which could be tested on the basis of laws applicable to breaches of contract.   He awarded the compensation to the extent that he considered right in his discretion without indicating his reason.   Such a decision by an arbitrator could not be held to be erroneous on the fact of the record. 

 In 'Champsey Bhara &Co., V. Jivraj Balloo Spg. & Wvg. Co. Ltd.,' (supra) the Privy Council observed - An error in law on the face of the award means, in their lordships' view, that you can find in the award or a document actually incorporated thereto, as for instance, a not appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous.

 In 'Rajpur Development Authority V. Chokhamal Contractors' (supra) the Constitution Bench of Supreme Court clarified that the ground arising out of an error of law apparent on the face of the award prima facie appears to fall either under Sec. 16(1)© of the Act, which empowers the court to remit the award to the arbitrator where an objection to the legality of the award which is apparent upon the face of it is successfully taken, or under Sec. 30© of the Act which empowers the Court to set side an award if it is otherwise invalid.

       The Supreme Court, after hearing both sides, held that there is no quarrel with the proposition canvassed by the appellants.  The scope of interference by the court is limited and the court would not be justified in re-appreciating the material on record and substituting its own view in place of arbitrator's view.   This exercise is not permissible by the court in view of the settled legal position.   But in the instant case where there is an error apparent on the face of the award or where the arbitrator has not followed the statutory legal position, the court would be justified in interfering with the award of the arbitrator.

       The Court held that it has reiterated the legal position that an arbitrator cannot ignore the law or misapply it in order to do what he thinks is just and reasonable.   The legal position has been crystallized in a series of judgments that the arbitrator has got ample power in giving an award.   The arbitrator is the sole judge of the quality as well as the quantity of evidence and it will not be the court to take upon itself a task of being a Judge of the evidence before the arbitrator.   The Court should approve the award with the desire to support it, if that is reasonably possible rather than to destroy it, by calling it illegal.   This Court has very limited jurisdiction to interfere with the reasoned award.   Only when the award is based upon a proposition of law which is unjustified in law, the error of law must appear from the award itself or from any document or note incorporated in it or appended to it.  It is not permissible to travel beyond and consider material not incorporated in or appended to the award.

       The Supreme Court in this case considered that the High Court in the impugned judgment the legal position has been correctly appreciated and the appeal is dismissed.